SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000
Commission file number:0-20316
AVITAR, INC.
(Name of small business issuer in its charter)
Delaware 06-1174053
(State or other jurisdiction of incorporation (I.R.S. Identification
or organization) Employer No.)
65 Dan Road, Canton, MA 02021
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (781) 821-2440
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of Classes
Common Stock, $.01 par value
Class A Warrants
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $4,079,072
Page 1 of 99 pages.
Exhibit Index is on page 47 hereof.
The aggregate market value of the common equity held by non-affiliates of the
Registrant (assuming solely for purposes hereof that all directors and
officers of the Registrant are "affiliates") as of December 31, 2000: $
41,249,971
The approximate number of shares of Common Stock outstanding (including shares
held by affiliates of the Registrant) as of December 31, 2000: 31,354,985
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes ; No X
Part I
Item 1. Description of Business
Introduction
Avitar, Inc. (the "Company" or "Avitar") through its wholly-owned
subsidiary Avitar Technologies, Inc. ("ATI") develops, manufactures, markets
and sells diagnostic test products and proprietary hydrophilic polyurethane
foam disposables fabricated for medical, diagnostics, dental and consumer use.
During Fiscal 2000, the Company continued the development and marketing of
innovative point of care oral fluid drugs of abuse tests, which use the
Company's foam as the means for collecting the oral fluid sample.
On July 9, 1999, the Company completed its acquisition of United States
Drug Testing Laboratories, Inc. ("USDTL"), which became a wholly-owned
subsidiary of Avitar. USDTL operates a certified laboratory and provides
specialized drug testing services primarily utilizing hair as the sample.
Products
Currently, the Company offers the following products, which utilize its
proprietary medical polyurethane foam technology:
Diagnostic Test Products
The Company makes products and offers services for the diagnostic test
applications described below. These products accounted for approximately 62%
of the Company's revenue in Fiscal 2000 and approximately 22% of the Company's
revenue in Fiscal 1999.
Drugs of Abuse Point of Collection Tests . The Company's ORALscreen (TM) is
an oral fluid-based, rapid on-site assay system for detecting drugs of abuse
(heroin, cocaine, marijuana and methamphetamines). To confirm the results of
ORALscreen tests, the Company offers ORALconfirm(TM), an oral fluid laboratory
test. In addition, Avitar offers ORALadvantage(TM) which is a complete package
geared to small businesses that includes ORALscreen tests, a sample substance
abuse testing policy and on-site drug testing program implementation tools.
Approximately $1 billion annually is spent worldwide for drugs of abuse tests.
Significant advantages exist for saliva to replace blood and urine in many of
drug tests and at the same time expand the market where current infrastructure
cost limitations prohibit the use of much needed diagnostic tests. Using its
Oral Fluid Sampling and Processing System, the Company has entered into this
large and growing market for drugs of abuse testing.
Drugs of Abuse Laboratory Tests. The Company's HairScreen(TM), a hair-
based test, can detect both short and long-term (90 days and beyond) drug
abuse. The Child Guard(TM) tests provide the ability to detect a child's
exposure to drugs and possible drug abuse through testing of a child's hair.
In addition, the MecStat testing services offer highly specialized testing to
detect in utero exposure to alcohol and other drugs of abuse in newborns.
Foam Disposable Products
The Company produces medical-grade hydrophilic polyurethane foam
disposables fabricated for the applications described below. These products
accounted for approximately 38% of the Company's revenue in Fiscal 2000 and
approximately 78% of the Company's revenue in Fiscal 1999.
Wound Dressings. Avitar's HydrasorbTM ("Hydrasorb") wound dressing product
is a highly absorbent topical dressing for moderate to heavy exudating wounds.
These dressings have a unique construction that provide a moist wound healing
environment which promotes skin growth and closure. The Hydrasorb product is
marketed internationally by the Kendall Company (Kendall), by the Knoll Pharma
Division of BASF ("Knoll") and other specialty distributors worldwide. In
addition to the Hydrasorb line, the Company has custom developed specialty
wound dressings for the cardiac catheter lab market as well as the orthopedic
market. The Joyce Dressing is used in dressing the introducer catheter for
cardiology procedures and is marketed directly by Avitar. The market in the
United States and Europe for synthetic dressings is estimated at $1.2 billion
annually with foam dressings accounting for approximately $150 million. New
foam applications are currently being evaluated by the Company to broaden this
product line.
Custom Foam Products. The Company continues to expand the number of
applications for its proprietary technologies in a variety of other
medical/consumer markets. They include the Illizarov Dressing used for
dressing external bone fixators in orthopedic procedures and a molded dental
applicator for a consumer teeth bleaching system, disposable ear cushions for
a high-tech hearing aid device and a device used by astronauts for relieving
ear pressure while in a pressurized space suit. Customers for these products
include Smith and Nephew, CCA Industries, Deaconess Hospital, Decibel
Instruments, NASA and Schleicher and Schuell.
Development
The Company employs a product strategy that is based on conducting pure
research and development and/or forming partnerships with market leading
companies and recognized persons or entities in diagnostic testing and foam
products application areas. With this approach, proprietary products are
either developed with internal sources or co-developed through the generation
and development of product ideas either internally or through these strategic
partnerships. To any such partnership, Avitar contributes the proprietary foam
technology and related expertise, the product design, development and
prototyping, and the start-up and commercial-scale manufacturing. The ability
of the Company to keep current on technology and purchase new equipment in
connection with development of new, improved products will be affected by its
existing and future need for, and the availability of, financing.
Products go through several stages of development. After each stage, the
Company will conduct studies to determine the effectiveness of such product.
Once a product is developed and the Company determines it may be commercially
viable, Avitar will obtain governmental approvals, if necessary, prior to
marketing the product. See "Government Regulation." There can be no assurance,
however, that such approvals will actually be obtained. The Company intends to
conduct marketing trials with any new product to determine the effectiveness
of the product. If such marketing trials prove to be successful and after the
product is ready for marketing, Avitar will begin selling the product. See
"Sales and Marketing" below.
Sales and Marketing
To sell its ORALscreen products, the Company relies on its sales force and a
network of established distributors that currently sell to the drugs of abuse
testing market. For HAIRscreen, ChildGuard, and MecStat services, the Company
sells these services directly to end users such as employers and through some
of the distributors used for the ORALscreen products. The Company also intends
to develop strategic partnering arrangements with significant diagnostic test,
health care and dental companies with established distribution channels.
Avitar anticipates that such arrangements may involve the grant by Avitar of
the exclusive or semi-exclusive rights to sell specific products to specified
market segments and/or in particular geographic territories in exchange for a
royalty, joint venture or other financial interest. The Company generally has
sold, and intends to continue to sell, its wound dressing and custom foam
products through large, recognized distributors of dental and medical products
and does not anticipate that a large direct sales force will be required for
these products. Avitar's sales and marketing staff consists of thirteen (13)
full-time employees. If the Company is unable to establish satisfactory
product distribution arrangements in this manner described above, it will be
required to devote substantial resources to the expansion of its direct sales
force. There can be no assurance that Avitar would have the resources required
for such an endeavor.
To introduce its products to targeted distributors and direct customers,
the Company participates in trade shows and conducts seminars for sales
personnel. Avitar also conducts user trials to support the marketing efforts
of its distribution partners.
The Company believes that these arrangements will be more effective in
promoting and distributing its products in view of Avitar's limited resources
and the extensive marketing networks of such distributors.
The Company's most significant distribution arrangements are summarized as
follows:
Oral Fluids Sampling and Processing Systems. In March 1996, the Company
signed a licensing agreement with Simplex Medical Systems, Inc. ("Simplex"),
which grants Avitar exclusive worldwide rights to manufacture and market
Simplex's patent-pending, state-of-the-art saliva collection device. This
device, which utilizes Avitar's proprietary foam technology, will be used to
collect saliva for diagnostic tests such as HIV, hepatitis, and a number of
other diseases and substances which formerly required blood as the test
medium. Under this licensing agreement, the Company must pay to Simplex
certain royalties on the sale of each licensed product.
Drugs of AbuseTest Kits. Under a development agreement signed in February
1999, Avitar and Sun Biomedical Laboratories ("SBL") have developed
OralScreen(TM) described above under Products. These tests use the Company's
proprietary oral fluid collection system with Avitar having the exclusive,
world-wide manufacturing and distribution rights to the tests.
Wound Dressings. In June 1992, Avitar granted Medi the right to sell
Avitar's wound care products in Germany for a period of one year. Although the
agreement, by its terms, expired in June 1993, Avitar and Medi have continued
the relationship under the terms and conditions of the original agreement.
Prices of products sold to Medi may be changed upon 60 days notice. Medi is a
privately owned distributor and producer of medical products based in
Bayreuth, Germany, and sells medical products in 20 countries. It distributes
products through its direct specialty sales force and distributes Avitar's
product on a private label basis.
Since November 1993, the Company has maintained a distribution agreement
with Knoll (the "Knoll Agreement") pursuant to which Knoll was granted the
right to distribute HydrasorbTM products throughout Canada. The Knoll
Agreement provides that HydrasorbTM products are to be sold at agreed upon
prices (subject to annual inflation adjustments) and that certain minimum
quantities are maintained.
In December 1999, the Company entered into a Supply Agreement with the Kendall
Company for the distribution of its Hydrasorb(TM) products in the United
States beginning January 1, 2000. In August 2000, the Company amended this
Supply Agreement to permit Kendall to distribute the Hydarsorb products
internationally.
Custom Foam Products. Custom medical foam products (including the Illizarov
dressing and certain nasal and sinus products) are marketed and distributed
(in the United States and abroad) primarily by Smith & Nephew on a
non-exclusive basis pursuant to an oral agreement.
Manufacturing and Supply.
The Company's only manufacturing facility is located in Canton,
Massachusetts and comprises approximately 53,000 square feet of which 12,000
square feet is currently being used for administrative and office space and
31,000 square feet is being used for product manufacturing and warehousing.
Since the remaining square space is not being used at this time and will not
be needed for the next several years, ATI is attempting to sublease
approximately 10,000 square feet.
Given the use of Avitar's products in the diagnostic test, medical and
dental markets, the Company is required to conform to the Food and Drug
Administration ("FDA") Good Manufacturing Practice regulations, International
Standard Organization ("ISO") rules and various other statutory and regulatory
requirements applicable to the manufacture and sale of medical devices. Avitar
is subject to inspections by the FDA at all times. See "Government
Regulation".
The Company does not have written agreements with most of its suppliers of
raw materials and laboratory supplies. While the Company purchases some
product components from single sources, most of the laboratory supplies used
by USDTL can be obtained from more than one source. Avitar acquires the same
key component for its FlurezeTM fluoride application product, customized foam
products and HydrasorbTM wound dressings from a single supplier. The Company
also purchases main components of its ORALscreen products from a single
source. Avitar's current suppliers of such key components are the only
vendors, which presently meet Avitar's specifications for such components. The
loss of these suppliers would, at a minimum, require the Company to locate
other satisfactory vendors, which would result in a period of time during
which manufacturing and sales of products utilizing such components may be
suspended and could have a material adverse effect on Avitar's financial
condition and operations. Avitar believes that alternative sources could be
found for such key components and expects that the cost of such components
from an alternative source would be similar. The Company also believes that
alternative sources of supply are available for its remaining product
components and that the loss of any such supplier would not have a material
adverse effect upon Avitar's business.
Government Regulation
Avitar and many of its products are subject to regulation by the FDA and the
corresponding agencies of the states and foreign countries in which the
Company sells its products. Accordingly, the Company is required to comply
with applicable FDA regulations, ISO rules and similar other state and foreign
country requirements governing the manufacture, marketing, distribution,
labeling, registration, notification, clearance and/or pre-market approval of
drugs, medical and dental devices and cosmetics, as well as record keeping and
reporting requirements applicable to such products. The Company believes that
it is in compliance with all such requirements. In addition, the Company is
subject to inspections by the FDA at all times, and may be subject to
inspections by state and foreign agencies. If the FDA believes that its legal
requirements have not been fulfilled, it has extensive enforcement powers,
including the ability to initiate action to physically seize products or to
enjoin their manufacture and distribution, to require recalls of certain types
of products, and to impose or seek to impose civil or criminal sanctions
against individuals or companies violating applicable statutes.
The standards and procedures for obtaining approval or providing
notification to the FDA with respect to medical devices were changed by
legislation in1990. This legislation, which also affected numerous other
changes in device regulations, is still being interpreted and implemented by
the FDA. In addition, there can be no assurance that the FDA or the U.S.
Federal Government will not enact further changes in the current rules and
regulations with respect to products, which Avitar already markets or may plan
to market in the future. If Avitar is unable to demonstrate compliance with
such new or modified requirements, sales of affected products may be
significantly limited or prohibited until such requirements are met (if ever).
Competition
The Company believes that the principal competitive factors in Avitar's
markets are innovative product design, product quality, established customer
relationships, name recognition, distribution and price. Many companies of all
sizes, including major diagnostic test, dental and health care companies, are
engaged in activities similar to those of Avitar. Most of Avitar's competitors
have substantially greater financial, marketing, administrative and other
resources and larger research and development staffs.
Although Avitar may not have the development resources of many of its
competitors, the Company believes its product design and development
experience allows it to compete favorably in providing innovative products and
services in Avitar's markets. Avitar's ORALscreen products, the only oral
fluid drugs of abuse point of collection tests currently being marketed in the
United States, and USDTL's HairScreen(TM), ChildGuard(TM) and MecStat services
represent the some of the most comprehensive, state-of-the-art tests for drugs
of abuse currently being provided in the United States and South America.
Furthermore, the Company believes that its Hydrasorb wound dressings, and
custom foam products possess qualities with significant advantages over
competing products, including cost effectiveness. Although the Company does
not have an established internal distribution network, Medi, Knoll and Kendall
are distributing the Company's HydrasorbTM wound dressings while Edwards
Medical and many smaller, local companies are distributing the Company's
ORALscreen products. See "Products", "Sales and Marketing".
In addition, colleges, universities, governmental agencies and other public
and private research organizations will continue to conduct research and are
becoming more active in seeking patent protection and licensing arrangements
to collect royalties for use of technology that they have developed, some of
which may be directly competitive with that of Avitar. In addition, these
institutions compete with companies such as Avitar in recruiting highly
qualified scientific personnel.
The Company believes that its product markets are highly fragmented with
many different companies competing with regard to a specific product or
product category. As a result, Avitar's competition varies from product to
product. Avitar's primary competitors in the wound dressing market include
Bristol Meyers Squibb, Johnson & Johnson, Smith and Nephew, 3M and Acme
United. In the drugs of abuse test market, the largest competitors are Roche
Diagnostic Systems, Biosite Diagnostics, Editek, Inc., Quest Diagnostics,
Abbott Diagnostics, OraSure Technologies, Inc., American Biomedical and
Psychemedics.
Intellectual Property
Trade secrets, proprietary information and know-how are important to the
Company's scientific and commercial success. Avitar currently relies on a
combination of patents, trade secrets, trademark law and non-disclosure
agreements to establish and protect its proprietary rights in its products.
Avitar currently holds numerous United States patents, has applications
pending for additional patents and has licenses to use certain patents. In
addition, the Company has certain registered and other trademarks.
The Company believes that its products, trademarks and other proprietary
rights do not infringe upon the proprietary rights of third parties.
Product Liability; Insurance Coverage
The testing, marketing and sales of diagnostic test, medical and dental
products and services entail a high risk of product liability and professional
liability claims by consumers and others. Claims may be asserted against the
Company by end-users of any of Avitar's products. As of September 30, 2000,
the Company had product liability insurance coverage in the amount of
$5,000,000 and professional liability insurance coverage in the amount of
$1,000,000 each incident and $3,000,000 in the aggregate. No claims had been
asserted against either coverage. Amounts payable pursuant to such coverage
are subject to a deductible on each occurrence ranging from $500 to $5,000
payable by Avitar, up to an annual aggregate deductible payable by Avitar of
$25,000, and certain other coverage exclusions. This insurance will not cover
liabilities caused by events occurring prior to the time such policy was
purchased by the Company or liabilities caused by events occurring after such
policy is terminated or for claims made after 60 days following termination of
the policy. Further, certain distributors of diagnostic test, medical and
dental products require minimum product liability insurance coverage as a
condition precedent to purchasing or accepting products for distribution.
Employees
At September 30, 2000, the Company had 75 full-time employees, including 10 in
research and development, 40 in manufacturing, supply and laboratory
operations, 13 in sales and marketing and 12 in administration. None of the
employees is subject to a collective bargaining agreement. The Company
believes its relationship with its employees to be satisfactory.
Item 2. Description of Property
The Company leases approximately 62,000 square feet (53,000 square feet in
Canton, Massachusetts for its manufacturing facility and administrative
offices and 9,000 square feet in DesPlaines, Illinois for the laboratory
operation of USDTL and a separate research and development laboratory). The
current annual rent for the Canton facility (excluding assessment for
operating expenses) is approximately $455,000 and the lease expires in June
2005. The annual rent lease for the DesPlaines facility is approximately
$152,000 and expires in April 2005. Both facilities are in satisfactory
condition for their purposes.
Item 3. Legal Proceedings.
In August 1996, A.S. Goldmen & Co., Inc. (the "Underwriter") and certain
holders of Underwriter's warrants issued by the Company commenced a court
action against the Company by filing a complaint in Federal Court for the
Southern District of New York (the "Court"), seeking, among other things,
damages of $6,261,839.00 based upon the Underwriters' warrant agreement
between the Company and the Underwriter.
The monetary demands made by the Underwriter relate primarily to the
anti-dilution provision of the warrant agreement. The Company believes that
the Underwriter's claims improperly sought additional underwriting
compensation in defiance of NASD rules that proscribe underwriters and their
associates from receiving the kind of compensation sought - based on the type
of anti-dilution provision invoked by the Underwriter on the ground that it is
unfair and unreasonable. The Company immediately moved to dismiss the
Underwriter's complaint based upon both the rule violations and otherwise. In
December 1998, the Court denied the Company's motion to dismiss the
Underwriter's complaint, but did not decide and expressly left open for a
later day the principal legal argument urged by the Company in favor of
dismissal. In March 1999, this action was settled and discontinued with
prejudice. In connection with the settlement, the company issued 400,000
shares of common stock.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Price Data. From March 25, 1998 until March 6, 2000, the Company's
Common Stock was quoted on the NASD OTC Bulletin Board ("OTC") under the
symbol AVIT. Since March 6, 2000 the Company's Common Stock has been traded on
American Stock Exchange ("AMEX") under the symbol AVR. The table below sets
forth the high and low sales prices for the Company's Common Stock, as quoted
on OTC and AMEX for the periods indicated. Quotations reflect inter-dealer
prices without retail markup, markdown or commission, and do not necessarily
represent actual transactions:
Fiscal 1999 High Low
First Quarter .19 .16
Second Quarter 1.48 .22
Third Quarter 1.95 1.23
Fourth Quarter 4.15 1.38
Fiscal 2000
First Quarter 3.91 1.50
Second Quarter 5.19 2.75
Third Quarter 3.18 1.75
Fourth Quarter 3.25 1.63
As of December 31, 2000 the last sales price for the Company's Common
Stock was $ 1.56 per share.
Holders. The Company had approximately 350 owners of record and, it
believes, in excess of 4,000 beneficial owners of the Company Common Stock as
of December 31, 2000.
Dividends. Since its inception, the Company has not paid or declared any
cash dividends on its Common Stock. The Company intends to retain future
earnings, if any, that may be generated from its operations to help finance
the operations and expansion of the Company and accordingly does not plan, for
the reasonably foreseeable future, to pay cash dividends to holders of its
Common Stock. Any decisions as to the future payment of dividends will depend
on the earnings, if any, and financial position of the Company and such other
factors as its Board of Directors may deem relevant.
Sales of Unregistered Securities. During the quarter ended September 30,
2000, the Company issued 1,255,346 shares of the Company's common stock in
connection with the exercise of warrants and sales of common stock for which
it received proceeds of approximately $ 600,000. The exemption for
registration of these securities is based on Section 4(2) of the Securities
Act.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto
appearing elsewhere in this report.
Results of Operations
Revenues
Sales for the fiscal year ended September 30, 2000 ("Fiscal 2000")
increased $1,583,649 or approximately 63% to $4,079,072 from $2,495,423 for
the fiscal year ended September 30, 1999 ("Fiscal 1999"). The results for
Fiscal 2000 primarily reflect the increase in sales of its drug testing
products of approximately $ 1,976,000 (including revenues from USDTL of
approximately $973,000); offset in part by a decrease in the sales of the
wound dressing and custom foam products of approximately $392,000.
Operating Expenses
Costs of sales were approximately 76% of sales in Fiscal 2000 compared to
approximately 83% of sales for Fiscal 1999. The improved ratio of cost to
sales for Fiscal 2000 was primarily related to the increase in sales described
above and the change in the product mix.
Sales, general and administrative expenses for Fiscal 2000 increased
$2,817,152 or approximately 105%, to $5,490,567 from $2,673,415 for Fiscal
1999. This increase reflected the expanded sales, marketing, laboratory
certification, product certification and administrative efforts associated
with the Company's ORALscreen and HAIRscreen products and USDTL's selling,
general and administrative expenses of approximately $410,600.
Research and development expenses for Fiscal 2000 amounted to $1,565,967
compared to $792,211 for Fiscal 1999. The increase of $773,756, or
approximately 98%, was primarily attributable to increased research and
development activities related to the Company's ORALscreen products and oral
fluid disease testing applications.
For Fiscal 2000, amortization of goodwill resulting from the Company's
acquisition of USDTL was $281,695 compared to amortization of goodwill of
$70,424 recorded in Fiscal 1999 (covering only the period of July 1, 1999 to
September 30, 1999).
Other Income and Expense
Interest income amounted to $15,884 for Fiscal 2000 compared to $30,273
for Fiscal 1999. The change resulted primarily from the decrease in interest
earned on cash management accounts.
Interest expense and financing costs were $80,260 for Fiscal 2000
compared to $121,572 incurred during Fiscal 1999. This decrease resulted
primarily from reduced interest expense on loans from banks and related
parties.
Other income amounted to $58,204 for Fiscal 2000 versus other income of
$73,729 for Fiscal 1999. This change mainly reflects lower rental income from
the Company subleasing excess square feet in its facility.
Net Loss
Primarily as a result of the factors described above, the Company had a
net loss of $6,360,783 for Fiscal 2000 compared to a net loss of $3,117,680
for Fiscal 1999.
Financial Condition and Liquidity
At September 30, 2000 and September 30, 1999, the Company had working
capital deficiencies of $543,515 and $738,755 respectively, and cash and cash
equivalents of $82,313 and $280,758, respectively. Net cash used in operating
activities during Fiscal 2000 amounted to $6,172,909 resulting primarily from
the operating loss of $6,360,783, an increase in accounts receivable of
$366,564, an increase in inventories of $282,797 and an increase in prepaid
expenses of $63,964; partially offset by depreciation and amortization of
$143,075, amortization of goodwill of $281,695, a provision for losses on
accounts receivable of $77,540, a decrease in other assets of $127,659 and
increases in accounts payable and accrued expenses of $271,230. Net cash
provided by financing and investing activities during Fiscal 2000 was $5,974,464
which included proceeds from the sale of preferred stock, common stock and
warrants of $2,966,936, proceeds from the exercise of options and warrants of
$2,947,152 and proceeds from the collection of preferred stock subscription
receivable of $595,599 ; offset in part by repayment of notes payable and long-
term debt of $308,733 and purchases of property and equipment and other assets
of $226,490.
In Fiscal 2000, the Company received net proceeds of approximately
$2,655,000 from the sale of 450,334 shares of Series C Convertible Preferred
Stock which included warrants to purchase 450,334 shares of the Company's common
stock at exercise prices of $2.45-$6.05 per share for a period of thirty-six
months. During the same period, the Company received proceeds of approximately
$312,000 from the sale of 145,032 shares of the Company's common stock and
proceeds of approximately $2,947,000 from the exercise of stock options and
warrants to purchase 4,841,518 shares of the Company's common stock. From
October 2000 through early January 2001, the Company received proceeds of
approximately $1,321,000 from the sale of 998,888 shares of the Company's common
stock which included warrants to purchase 3,098,888 shares of the Company's
common stock at exercise prices of $1.25-$1.50 per share for periods of
thirty-six to sixty months. The Company is attempting to raise up to $10,000,000
from the sales of equity and/or debt securities. The Company plans to use the
proceeds from these financings to provide working capital and capital equipment
funding to operate the Company, to expand the Company's business, to further
develop and enhance the ORALscreen and HAIRscreen drug screening systems, to
fund strategic acquisitions and to pursue the development of oral fluid
diagnostic testing for diseases. However, there can be no assurance that these
financings will be achieved.
For the balance of fiscal year 2001, the Company's cash requirements are
expected to include primarily the funding of operating losses, the payment of
outstanding accounts payable, the repayment of certain notes payable, the
funding of operating capital to grow the Company's drugs of abuse testing
products and services, the continued funding for the development of oral fluid
diagnostic testing products for diseases and the exploration and funding of
acquisitions that will accelerate the expansion of the Company.
Operating revenues of the Company (exclusive of revenues from USDTL) grew
approximately 40% in Fiscal 2000 and are expected to grow at a more rapid pace
during Fiscal 2001 as the Company expands its shipments of new and enhanced
ORALscreen products and grows the business of USDTL. Based on current sales,
expense and cash flow projections, the Company believes that the current level
of cash and short-term investments on hand and most importantly, a portion of
the anticipated net proceeds from the financing mentioned above would be
sufficient to fund operations until the Company achieves profitability. There
can be no assurance that the Company will consummate the above-mentioned
financing, or that any or all of the net proceeds sought thereby will be
obtained. Once the Company achieves profitability, the longer-term cash
requirements of the Company to fund operating activities, purchase capital
equipment, expand the existing business and develop new products are expected to
be met by the anticipated cash flow from operations and proceeds from the
financings described above. However, because there can be no assurances that
sales will materialize as forecasted, management will continue to closely
monitor and attempt to control costs at the Company and will continue to
actively seek the needed additional capital.
As a result of the Company's recurring losses from operations and working
capital deficit, the report of its independent certified public accountants
relating to the financial statements for Fiscal 2000 contains an explanatory
paragraph stating substantial doubt about the Company's ability to continue as a
going concern. Such report states that the ultimate outcome of this matter could
not be determined as of the date of such report (December 5, 2000). The
Company's plans to address the situation are presented above. However, there are
no assurances that these endeavors will be successful or sufficient.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued FSAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure them at their fair
values. If certain conditions are met, a derivative may be specifically designed
as a hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes in
the fair value of the hedged assets or liability or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized income in the period of change. SFAS
No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to affect its financial statements.
In March 2000, the FASB issued interpretation No. 44 ("FIN44"), "Accounting
for Certain Transactions Involving Stock Compensation, an interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for (a) the
definition of employee for purposes of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN44 is effective July 1, 2000 but certain
conclusions cover specific events that occur after either December 15, 1998 or
January 12, 2000. The Company has adopted FIN 44 in Fiscal 2000 and it did not
have a material effect on the Company's financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 which summarizes certain of the SEC staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Staff Accounting bulletin is effective
for the year beginning October 1, 2000. The initial adoption of this guideline
is not anticipated to have a material impact on the Company's results of
operations or financial position, however, the guidance may impact the way in
which the Company will account for future transactions.
In November 2000, the FASB Emerging Issues Task Force ("EITF") issued a
consensus that requires the remeasurement of original issue discount on
preferred stock with characteristics similar to the convertible preferred stock
issued by the Company during fiscal years 2000 and 1999. The Company is
currently reviewing the impact in the financial statements of adopting the EITF
consensus and believes that such adoption will increase the original issue
discount by approximately $1,078,000 and will result in additional dividends
related to preferred stock. Upon completion of its review, the Company will
record any change in the original issue discount in the first quarter of Fiscal
2001.
Item 7. Financial Statements
Reference is made to the Index on page F-2 of the Consolidated Financial
Statements, included herein.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
<PAGE>
Avitar, Inc. and Subsidiaries
Contents
Consolidated financial statements:
Balance sheet F-3 to F4
Statements of operations F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7 to F-8
Notes to consolidated financial statements F-9 to F-30
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Avitar, Inc.
We have audited the accompanying consolidated balance sheet of Avitar, Inc. and
subsidiaries as of September 30, 2000, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the two years in
the period ended September 30, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Avitar, Inc. and
subsidiaries as of September 30, 2000, and the results of their operations and
their cash flows for each of the two years in the period ended September 30,
2000, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a working capital deficit as of September 30, 2000.
These matters raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
BDO Seidman, LLP
Boston, Massachusetts
December 5, 2000 except
for Note 14 for which the
date is January 12, 2001
<PAGE>
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
September 30, 2000
-------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 82,313
Accounts receivable, less allowance for doubtful
accounts of $113,000 (Notes 4 and 13) 747,883
Inventories (Note 5) 507,878
Prepaid expenses and other 205,072
Preferred stock subscription receivable (Note 11) 42,228
------------------------------------------------------------------------
Total current assets 1,585,374
Property and equipment, net (Note 6) 376,341
Goodwill, net of accumulated amortization of $352,119 2,464,833
Other assets (Note 7) 259,706
------------------------------------------------------------------------
$ 4,686,254
==============
See accompanying notes to consolidated financial statements
<PAGE>
Avitar, Inc. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, 2000
------------------------------------------------------------------------------------------------------
<S> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt (including $7,063 due to affiliates) (Note 8) $ 285,243
Accounts payable 1,200,550
Accrued expenses (including $11,486 due to affiliates) 545,258
Current maturities of long-term debt (Note 9) 34,911
Current portion of capital lease obligation (Note 10) 62,927
------------------------------------------------------------------------------------------------------
Total current liabilities 2,128,889
Long-term debt, less current maturities (Note 9) 15,647
Capital lease obligation, less current portion (Note 10) 54,352
------------------------------------------------------------------------------------------------------
Total liabilities 2,198,888
------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 10 and 11)
Stockholders' equity (Note 11):
Series A, B and C convertible preferred stock, $.01 par value; authorized
5,000,000 shares;2,062,143 shares issued and outstanding, with aggregate
liquidation value - Series A - $53,548 plus 7% annual dividend;
Series B - $3,751,072, Series C - $2,654,840 20,621
Common stock, $.01 par value; authorized 75,000,000 shares; 30,695,692 shares
issued and outstanding 306,957
Additional paid-in capital 31,213,838
Accumulated deficit (28,993,409)
------------------------------------------------------------------------------------------------------
2,548,007
Less preferred stock subscription receivable (60,641)
------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,487,366
------------------------------------------------------------------------------------------------------
$ 4,686,254
===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Avitar, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales (Note 13) $ 4,079,072 $ 2,495,423
--------------------------------------------------------------------------------------------------
Operating expenses:
Cost of sales 3,095,454 2,059,483
Selling, general and administrative 5,490,567 2,673,415
Research and development 1,565,967 792,211
Amortization of goodwill 281,695 70,424
--------------------------------------------------------------------------------------------------
Total operating expenses 10,433,683 5,595,533
--------------------------------------------------------------------------------------------------
Loss from operations (6,354,611) (3,100,110)
--------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 15,884 30,273
Interest expense and financing costs (includes $708 and
$716 to affiliates) (80,260) (121,572)
Other income, net 58,204 73,729
--------------------------------------------------------------------------------------------------
Total other expense (6,172) (17,570)
--------------------------------------------------------------------------------------------------
Net loss $ (6,360,783) $ (3,117,680)
===================================
Basic and diluted net loss per share (Note 11) $ (.26) $ (.24)
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Avitar, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Note 11)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in
-------------------- --------------------
Years ended September 30, 2000 and 1999 Shares Amount Shares Amount Capital
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 792,588 $ 7,926 17,469,768 $ 174,698 $15,496,788
-----------------------------------------------------------------------------------------------------------------------------------
Conversion of Series A preferred stock into common stock (603,701) (6,037) 1,811,103 18,111 (12,074)
Conversion of Series B preferred stock into common stock (36,771) (368) 367,440 3,674 (3,306)
Conversion of notes payable from affiliates into Series B
preferred stock 24,570 246 - - 199,754
Issuance of common stock for services - - 87,111 871 27,875
Exercise of stock options - - 56,450 565 20,625
Sale of Series B preferred stock, net of expenses 1,542,966 15,430 - - 3,642,870
Exercise of warrants - - 2,244,200 22,442 844,650
Issuance of common stock in connection with settlement - - 400,000 4,000 (4,000)
of litigation
Issuance of common stock in connection with acquisition - - 2,062,570 20,626 2,746,225
Payment of preferred stock dividend, Series B preferred stock 443 4 - - 8,915
Accreted dividends, Series B preferred stock - - - - 873,073
Value of warrants issued in connection with Series B preferred
stock sales - - - - 609,266
Net loss - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 1,720,095 17,201 24,498,642 244,987 24,450,661
Sale of common stock, net of expenses - - 145,032 1,450 310,646
Conversion of Series B preferred stock into common stock (121,050) (1,211) 1,210,500 12,105 (10,894)
Exercise of warrants - - 4,704,793 47,048 2,799,496
Exercise of stock options - - 136,725 1,367 99,241
Sale of Series C preferred stock, net of expenses 450,334 4,503 - - 2,650,337
Payment of preferred stock dividend 12,764 128 - - 383,162
Value of warrants issued in connection with Series C preferred
stock sales - - - - 468,939
Value of warrants extended - - - - 62,250
Collection of preferred stock subscription receivable - - - - -
Net loss - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 2,062,143 $20,621 30,695,692 $ 306,957 $31,213,838
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Avitar, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (continued)
(Note 11)
<TABLE>
<CAPTION>
Preferred
Stock
Accumulated Subscription
Years ended September 30, 2000 and 1999 Deficit Receivable
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at September 30, 1998 $(17,109,209) $ -
Conversion of Series A preferred stock into common stock - -
Conversion of Series B preferred stock into common stock - -
Conversion of notes payable from affiliates into Series B
preferred stock - -
Issuance of common stock for services - -
Exercise of stock options - -
Sale of Series B preferred stock, net of expenses - (456,468)
Exercise of warrants - -
Issuance of common stock in connection with settlement - -
of litigation
Issuance of common stock in connection with acquisition - -
Payment of preferred stock dividend, Series B preferred stock (8,919) -
Accreted dividends, Series B preferred stock (873,073) -
Value of warrants issued in connection with Series B preferred
stock sales (609,266) -
Net loss (3,117,680) -
-----------------------------------------------------------------------------------------------------
Balance at September 30, 1999 (21,718,147) (456,468)
Sale of common stock, net of expenses - -
Conversion of Series B preferred stock into common stock - -
Exercise of warrants - -
Exercise of stock options - -
Sale of Series C preferred stock, net of expenses - -
Payment of preferred stock dividend (383,290) -
Value of warrants issued in connection with Series C preferred
stock sales (468,939) -
Value of warrants extended (62,250) -
Collection of preferred stock subscription receivable - 395,827
Net loss (6,360,783) -
-----------------------------------------------------------------------------------------------------
Balance at September 30, 2000 $(28,993,409) $ (60,641)
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Avitar, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,360,783) $ (3,117,680)
Adjustments to reconcile net loss to net cash used in
operating activities
Provision for doubtful accounts 77,540 -
Depreciation and amortization 143,075 121,112
Amortization of goodwill 281,695 70,424
Noncash charge for services and compensation - 28,746
Changes in operating assets and liabilities excluding effects
of purchase of USDTL:
Accounts receivable (366,564) (108,051)
Inventories (282,797) (82,891)
Prepaid expenses and other current assets (63,964) (8,177)
Other assets 127,659 (327,627)
Accounts payable and accrued expenses 271,230 77,540
-----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (6,172,909) (3,346,604)
-----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (192,122) (69,179)
Purchase of other assets (34,368) -
Acquisition of USDTL, net of cash acquired - 11,882
-----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (226,490) (57,297)
-----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of notes payable and long-term debt (308,733) (175,938)
Sales of preferred stock, common stock and warrants 2,966,936 2,959,832
Exercise of stock options and warrants 2,947,152 888,282
Collection of subscription receivable 595,599 -
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,200,954 3,672,176
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (198,445) 268,275
Cash and cash equivalents, beginning of year 280,758 12,483
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 82,313 $ 280,758
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Avitar, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Concluded)
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 78,844 $ 122,300
Taxes $ 2,303 $ 500
Supplemental schedule of noncash investing and
financing activities:
During 2000, 121,050 shares of Series B preferred stock were converted into
1,210,500 shares of common stock.
During 2000, 12,764 shares of Series B preferred stock were issued as payment
of a preferred stock dividend of $383,290.
Notes payable of $200,000 were converted into preferred stock during 1999.
Accounts payable in the amount of $232,188, which was due to the Company's
landlord for past due rent obligations, was converted into notes payable
during 1999.
During 1999, 400,000 shares of common stock was issued in connection with
settlement of litigation. (See Note 11).
During 1999, 603,701 shares of Series A preferred stock were converted into
1,811,103 shares of common stock.
During 1999, 36,771 shares of Series B preferred stock were converted into
367,440 shares of common stock.
During 1999, the Company acquired all the outstanding capital stock of United
States Drug Testing Laboratories, Inc. as follows:
Fair value of assets acquired excluding cash received of $11,882 $ - $ 396,554
Liabilities assumed - (375,085)
Direct costs of acquisition - (83,452)
Common stock issued - (2,766,851)
Goodwill - 2,816,952
------------------------------------------------------------------------------------------------------------------------
Net cash received $ - $ 11,882
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
1. Description of
Business and Basis
Of Presentation
Avitar, Inc. ("Avitar" or the "Company")
through its wholly-owned subsidiaries,
Avitar Technologies, Inc. ("ATI") and
United States Drug Testing Laboratories,
Inc. ("USDTL") designs, develops,
manufactures, markets, and provides
healthcare and diagnostic test products
and services. Avitar sells its products
and services to large medical supply
companies, diagnostic test distributors,
governmental agencies and employers. The
Company operates in one reportable
segment.
The Company's consolidated financial
statements have been presented on the
basis that it is a going concern, which
contemplates the realization of assets and
the satisfaction of liabilities in the
normal course of business. The Company has
suffered recurring losses from operations
and has a working capital deficit of
$543,515 as of September 30, 2000. The
Company raised net proceeds aggregating
approximately $5,914,000 during the year
ended September 30, 2000 from the sale of
stock and exercise of options and
warrants. The Company is attempting to
obtain additional equity financing (see
Note 14). Based upon cash flow
projections, the Company believes the
anticipated cash flow from operations and
expected net proceeds from future equity
financings will be sufficient to finance
the Company's operating needs until the
operations achieve profitability. There
can be no assurances that forecasted
results will be achieved or that
additional financing will be obtained. The
financial statements do not include any
adjustments relating to the recoverability
and classification of asset amounts or the
amounts and classification of liabilities
that might be necessary should the Company
be unable to continue as a going concern.
<PAGE>
2. Summary of
Significant
Accounting
Policies
Estimates and
Assumptions
The preparation of financial statements in
conformity with generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements and the reported
amounts of revenues and expenses during
the reporting period. Actual results could
differ from those estimates.
Principles of
Consolidation
The consolidated financial statements
include the accounts of the Company and
its wholly-owned subsidiaries. The results
of USDTL are included from July 9, 1999,
the effective date of acquisition as
described in Note 3. All significant
intercompany balances and transactions
have been eliminated.
Revenue
Recognition
Sales of products and services are
recorded in the period the products are
shipped or services are provided.
Cash Equivalents
The Company considers all highly liquid
investments and interest-bearing
certificates of deposit with original
maturities of three months or less to be
cash equivalents.
Inventories
Inventories are recorded at the lower of
cost (determined on a first-in, first-out
basis) or market.
Property and
Equipment
Property and equipment (including
equipment under capital leases) is
recorded at cost at the date of
acquisition. Depreciation is computed
using the straight-line method over the
estimated useful lives of the assets
(three to seven years). Leasehold
improvements are amortized over the terms
of the leases. Expenditures for repairs
and maintenance are expensed as incurred.
<PAGE>
2. Summary of
Significant
Accounting
Policies
(Continued)
Goodwill
Goodwill resulting from the excess of cost
over fair value of net assets acquired is
being amortized on a straight-line basis
over 10 years. The Company evaluates the
recoverability and remaining life of its
goodwill and determines whether the
goodwill should be completely or partially
written-off or the amortization period
accelerated. The Company will recognize an
impairment of goodwill if undiscounted
estimated future operating cash flows of
the acquired business are determined to be
less than the carrying amount of the
goodwill. If the Company determines that
the goodwill has been impaired, the
measurement of the impairment will be
equal to the excess of the carrying amount
of the goodwill over the amount of the
undiscounted estimated future operating
cash flows. If an impairment of goodwill
were to occur, the Company would reflect
the impairment through a reduction in the
carrying value of goodwill.
Patents
Patent costs are being amortized over
their estimated useful lives of 5 - 7
years by the straight-line method.
Research and
Development
Research and development costs are
expensed as incurred.
Income (Loss)
Per Share of
Common Stock
The Company follows Statement of Financial
Accounting Standards No. 128 ("SFAS 128")
"Earnings per Share." Under SFAS 128,
basic earnings per share excludes the
effect of any dilutive options, warrants
or convertible securities and is computed
by dividing the net income (loss)
available to common shareholders by the
weighted average number of common shares
outstanding for the period. Diluted
earnings per share is computed by dividing
the net income (loss) available to common
shareholders by the sum of the weighted
average number of common shares and common
share equivalents computed using the
average market price for the period under
the treasury stock method (when dilutive).
<PAGE>
2. Summary of
Significant
Accounting
Policies
(Continued)
Stock Options
The Company follows the provisions of
Statement of Financial Accounting
Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation."
The Company accounts for stock options to
employees at their intrinsic value with
disclosure of the effects of fair value
accounting on net income (loss) and income
(loss) per basic and diluted share of
common stock on a pro forma basis.
Income Taxes
Income taxes are accounted for using the
liability method as set forth in Statement
of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this
method, deferred income taxes are provided
on the differences in basis of assets and
liabilities between financial reporting
and tax returns using enacted rates.
Valuation allowances have been recorded
(see Note 12).
Fair Value of
Financial
Instruments
The carrying amounts of cash, accounts
receivable and accounts payable
approximate fair value because of the
short-term nature of these items. The
current fair values of the short and
long-term debt approximate fair value
because of the respective interest rates.
Advertising
The Company expenses advertising costs as
incurred. Advertising expense was
approximately $628,000 and $265,000 in
fiscal 2000 and 1999, respectively.
<PAGE>
2. Summary of
Significant
Accounting
Policies
(Continued)
Recent
Accounting
Standards
In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires
companies to recognize all derivative
contracts at their fair values, as either
assets or liabilities on the balance
sheet. If certain conditions are met, a
derivative may be specifically designated
as a hedge, the objective of which is to
match the timing of gain or loss
recognition on the hedging derivative with
the recognition of (1) the changes in the
fair value of the hedged asset or
liability that are attributable to the
hedged risk, or (2) the earnings effect of
the hedged forecasted transaction. For a
derivative not designated as a hedging
instrument, the gain or loss is recognized
in income in the period of change. SFAS
No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters of
fiscal years beginning after June 15,
2000.
Historically, the Company has not entered
into derivative contracts either to hedge
existing risks or for speculative
purposes. Accordingly, the Company does
not expect adoption of the new standard to
affect its financial statements.
In March 2000, the FASB issued
interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions
Involving Stock Compensation, an
interpretation of APB Opinion No. 25." FIN
44 clarifies the application of APB No. 25
for (a) the definition of employee for
purposes of applying APB 25, (b) the
criteria for determining whether a plan
qualifies as a noncompensatory plan, (c)
the accounting consequences of various
modifications to the previously fixed
stock option or award, and (d) the
accounting for an exchange of stock
compensation awards in a business
combination. FIN 44 is effective July 1,
2000 but certain conclusions cover
specific events that occur after either
December 15, 1998 or January 12, 2000. The
Company has adopted FIN 44 in fiscal 2000
and it did not have a material effect on
the Company's financial statements.
<PAGE>
2. Summary of
Significant
Accounting
Policies
(Continued)
New Accounting
Pronouncements
In December 1999, the Securities and
Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 which
summarizes certain of the SEC staff's
views in applying generally accepted
accounting principles to revenue
recognition in financial statements. The
Staff Accounting bulletin is effective for
the year beginning October 1, 2000. The
initial adoption of this guidance is not
anticipated to have a material impact on
the Company's results of operations or
financial position, however, the guidance
may impact the way in which the Company
will account for future transactions.
In November 2000, the FASB Emerging Issues
Task Force ("EITF") issued a consensus
that requires the remeasurement of
original issue discount on preferred stock
with characteristics similar to the
convertible preferred stock issued by the
Company during fiscal years 2000 and 1999.
The Company is currently reviewing the
impact in the financial statements of
adopting this EITF consensus and believes
that such adoption will increase the
original issue discount by approximately
$1,078,000 and will result in additional
dividends related to preferred stock. Upon
completion of its review, the Company will
record any change in the original issue
discount in the first quarter of fiscal
2001.
3. Acquisition
On July 9, 1999 the Company acquired all
the outstanding capital stock of United
States Drug Testing Laboratories, Inc.
("USDTL") in exchange for approximately 2
million restricted shares of common stock
of Avitar which were valued at fair value
at the date of acquisition. The amount of
consideration was determined by arm's
length negotiation between Avitar and the
majority stockholders of USDTL, taking
into account the revenues and prospects
for USDTL. The acquisition was recorded
using the purchase method of accounting.
USDTL is engaged in the business of
providing specialized laboratory testing
operations including substance abuse
identification and other related services.
<PAGE>
3. Acquisition
(Continued)
The consolidated statements of operations
and cash flows for the year ended
September 30, 1999 include the results of
operations and cash flows of USDTL from
July 9, 1999 through September 30, 1999.
The unaudited pro forma combined results
of operations of the Company and the
business acquired in fiscal 1999 for the
year ended September 30, 1999, assuming
that the transaction had occurred at
October 1, 1998 and after giving effect to
certain pro forma adjustments are as
follows:
<TABLE>
<CAPTION>
Years ended September 30, 1999
--------------------------------------------------------------------------------------
<S> <C>
Revenue $ 3,234,089
Net loss from continuing operations $ (3,450,008)
Net loss per common share:
Basic and diluted $ (.24)
</TABLE>
4. Accounts
Receivable
In the ordinary course of business, the
Company will factor its receivables with a
financial services organization at full
recourse against the Company. The Company
pays an administration fee of .25% of each
purchased receivable and 2% per month of
the average daily account balance
outstanding. Interest expense charged to
operations amounted to approximately
$34,000 and $56,000 during the years ended
September 30, 2000 and 1999, respectively,
related to the factored receivables. At
September 30, 2000 there were no Company
receivables factored.
5. Inventories
Inventories consist of the following:
September 30, 2000
-------------------------------------
Raw materials $ 181,575
Work-in-process 85,102
Finished goods 241,201
-------------------------------------
$ 507,878
-------------------------------------
<PAGE>
6. Property and
Equipment
Property and equipment consists of the
following:
September 30, 2000
------------------------------------------
Equipment $ 891,987
Furniture and fixtures 183,907
Leasehold improvements 43,740
------------------------------------------
------------------------------------------
Less: accumulated depreciation
and amortization 743,293
------------------------------------------
$ 376,341
------------------------------------------
At September 30, 2000, the cost of
equipment under capital leases was
$219,306 and the related accumulated
amortization was $78,372.
7. Other Assets
Other assets consist of the following:
September 30, 2000
------------------------------------------
Restricted cash $ 142,341
Patents 167,627
Other 11,000
------------------------------------------
320,968
Less accumulated amortization 61,262
------------------------------------------
Other assets, net $ 259,706
------------------------------------------
<PAGE>
7. Other Assets
(Continued)
In connection with the purchase of USDTL,
the Company entered into an escrow
agreement. Pursuant to this agreement,
$270,000 was originally deposited with an
escrow agent as additional security for
certain commitments of USDTL assumed by
the Company of which $142,341 remained
restricted at September 30, 2000. The
remaining restricted funds will be
released back to the Company as
commitments are reduced, no later than
July 1, 2001, unless there are unresolved
claims outstanding. These funds have been
classified as restricted cash.
8. Short-Term Debt
Short-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------------------------------------------------------------
<S> <C>
Revolving Credit Agreement with a bank, due on demand, monthly
interest payments at prime plus 3% (12.5% at September 30,
2000). $247,820
Note payable to insurance company, interest at 8.5%, payable in
monthly installments of approximately $6,900, including
interest, through February 2001. 29,700
Note payable to bank, interest at 8.5%, payable in monthly
installments of $1,148, including interest, through September
2000. 660
Funds advanced from various related parties, interest at 10%.7,063
--------------------------------------------------------------------------------------
$ 285,243
--------------------------------------------------------------------------------------
</TABLE>
The Revolving Credit Agreement (the
"Agreement") provides for borrowings up to
$250,000 and was amended to extend the
expiration date to December 15, 2000 and
increase the interest rate to prime plus
4%. The Company is negotiating with a bank
to replace the existing agreement.
Outstanding borrowings are collateralized
by the assets of the Company and
guaranteed by certain principals of the
Company. The Agreement requires the
Company to maintain certain financial and
other covenants.
<PAGE>
9. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------------------------------------------------------------
<S> <C>
Note payable to bank maturing February 5,
2002, principal and interest at 8.00%
per annum payable in monthly
installments of $3,138, including
interest, collateralized by general
business assets of USDTL and personal
residence of USDTL's former owner.
$50,558
Less current maturities 34,911
--------------------------------------------------------------------------------------
Long-term debt $ 15,647
--------------------------------------------------------------------------------------
Maturities of long-term debt are as
follows:
September 30, Amount
--------------------------------------------------------------------------------------
2001 $ 34,911
2002 15,647
--------------------------------------------------------------------------------------
$ 50,558
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
10. Commitments and
Contingencies
Lease
ATI and USDTL lease office space under
operating leases which expire in 2005.
Certain additional costs are incurred in
connection with the leases and the leases
may be renewed for additional periods. ATI
leases certain equipment under capital
leases.
Rental expense under the noncancelable
operating leases charged to operations for
the years ended September 30, 2000 and
1999 totaled approximately $498,000 and
$455,000, respectively.
<PAGE>
10. Commitments and
Contingencies
(Continued)
Lease
(Continued)
In fiscal 1995, the Company issued
warrants to purchase 150,000 shares of its
common stock to its lessor at an exercise
price of $.50 per share. All warrants were
exercised during fiscal 1999.
Future minimum rentals are as follows:
<TABLE>
<CAPTION>
Capital Operating
--------------------------------------------------------------------------------------
<S> <C> <C>
2001 $ 62,950 $635,627
2002 70,652 639,554
2003 40,945 643,481
2004 10,015 647,407
2005 - 295,136
--------------------------------------------------------------------------------------
Total minimum lease payments 184,562 $2,861,205
===========
Less amount representing interest 67,283
--------------------------------------------------------------
Present value of net minimum
lease payments 117,279
Less current portion 62,927
--------------------------------------------------------------
Long-term portion $ 54,352
==============================================================
</TABLE>
<PAGE>
10. Commitments and
Contingency
(Continued)
Employment
Agreements
The Company entered into employment
agreements with its two principal
executives, which payments thereunder were
subsequently assigned to an affiliate. The
agreements provide for annual compensation
aggregating $380,000 per year, plus
cost-of-living increases and bonuses based
upon pre-tax income, as defined. In the
event of a change in control of the
Company, the two executives may be
entitled to receive up to two times their
annual salary plus prior bonus. The
agreements renew automatically on an
annual basis and may be terminated upon 60
days written notice by either party.
Expenses under these agreements totaled
approximately $335,000 and $300,000 in
2000 and 1999, respectively.
In July 1999, the Company entered into
employment agreements with two executives
of USDTL. The agreements provide for
annual compensation aggregating $226,000
per year, plus cost-of-living increases
and bonuses or commissions, as defined.
The agreements terminate on July 1, 2004.
Expenses under these agreements totaled
approximately $226,000 and $64,000 in 2000
and 1999, respectively.
Retirement Plan
In February 1998, the Company adopted a
defined contribution retirement plan which
qualifies under Section 401(k) of the
Internal Revenue Code, covering
substantially all employees. Participant
contributions are made as defined in the
Plan agreement. Employer contributions are
made at the discretion of the Company. No
Company contributions were made in 2000 or
1999.
<PAGE>
11. Stockholders'
Equity
Preferred Stock
Preferred stock consists of the following;
September 30, 2000
------------------------------------------
Series A 53,548
Series B 1,558,261
Series C 450,334
------------------------------------------
Total 2,062,143
------------------------------------------
The 53,548 shares of Series A convertible
preferred stock issued and outstanding
entitle the holder of each share to:
convert it, at any time, at the option of
the holder, into three shares of common
stock subject to antidilution provisions;
receive dividends in an amount equal to
110% of the dividends paid on the
Company's common stock into which each
share is convertible; redeem, in whole or
in part, at the Company's option at a
price of $1.00 per share if the common
stock trades at $3.00 or more per share
for a defined period; and receive $1.00
per share plus a liquidating dividend of
7% annually in preference to holders of
common stock in the event of liquidation.
The 1,558,261 shares of Series B
convertible preferred stock issued and
outstanding entitle the holder of each
share to: convert it, at any time, at the
option of the holder, into ten shares of
common stock subject to antidilution
provisions and receive dividends amounting
to an annual 8% cash dividend or 10% stock
dividend payable in shares of Series B
preferred stock computed on the amount
invested, at the discretion of the
Company. After one year from the date of
issuance, the Company may redeem, in whole
or in part, the outstanding shares at the
offering price in the event that the
average closing price of ten shares of the
Company's common stock shall equal or
exceed 300% of the offering price for any
20 consecutive trading days prior to the
notice of redemption; and liquidating
distributions of an amount per share equal
to the offering price. In connection with
preferred stock issuances in 1999,
<PAGE>
11. Stockholders'
Equity
(Continued)
Preferred Stock
(Continued)
$102,869 of subscription receivables
remain outstanding as of September 30,
2000. Of this amount, $42,228 is
classified as a current asset as this cash
was collected subsequent to year end.
Approximately 101,100 shares of the Series
B convertible preferred stock were issued
with a conversion price below the common
stock's quoted value, and as a result,
accreted dividends of $873,073 were
recorded and included in the earnings per
share calculation for year ended September
30, 1999. Undeclared and unpaid dividends
amounted to $256,312 and $274,677 at
September 30, 2000 and 1999, respectively.
The 450,334 shares of Series C convertible
preferred stock issued and outstanding
entitle the holder of each share, after
one year from the date of investment, to
convert into the number of shares of
common stock derived by dividing the
purchase price paid for each share of the
preferred stock by the average price of
the Company's common stock for the five
trading days prior to conversion subject
to antidilution provisions; receive
royalties of 5% of revenues related to
disease diagnostic testing from the
preceding fiscal year. There were no
royalties as of September 30, 2000. After
one year from the date of investments the
Company may redeem in whole or in part,
into the number of common shares derived
by dividing the redemption price, as
defined, by the average closing price of
the Company's common stock for the five
trading days prior to the redemption date,
and liquidating distributions of an amount
per share equal to the amount of unpaid
royalties due to the holder in the event
of liquidation.
<PAGE>
11. Stockholders'
Equity
(Continued)
Common Stock
Purchase
Warrants
The Company has outstanding warrants
entitling the holders to purchase one
share of common stock at the applicable
exercise price. During fiscal 2000,
warrants were exercised for 4,704,793
shares and warrants covering 1,251,807
were cancelled or expired. During fiscal
1999, warrants were exercised for
2,244,200 shares and warrants covering
473,500 shares were cancelled or expired.
In fiscal 2000 and 1999, warrants covering
450,334 and 8,061,000 shares were issued,
respectively, primarily in connection with
preferred stock issuances The value of the
warrants issued in connection with
preferred stock sales amounted to $468,939
and $609,266 for fiscal 2000 and 1999,
respectively. These amounts are recorded
and included in the earnings per share
calculation. The following is a summary of
shares issuable upon the exercise of
warrants (all of which are exercisable) at
September 30, 2000.
<TABLE>
<CAPTION>
Exercise Shares Expiration
Price Issuable Date
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Warrants issued to consultant for services provided $.25 100,000 2001 - 2003
Warrants issued in connection with preferred
stock issuance in 1999 $.225-$.54 2,800,000 2000
Warrants issued in connection with services $.26 -$.75 274,400 2003 - 2004
Warrants issued in connection with repaid
notes payable $.28 400,000 2003
Warrants issued in connection with preferred
stock issuance in 2000 $2.45-$6.05 450,334 2002 - 2003
</TABLE>
<PAGE>
11. Stockholders'
Equity
(Continued)
Stock Options
The Company has stock option plans
providing for the granting of incentive
stock options for up to 750,000 shares of
common stock to certain employees to
purchase common stock at not less than
100% of the fair market value on the date
of grant. Each option granted under the
plan may be exercised only during the
continuance of the optionee's employment
with the Company or during certain
additional periods following the death or
termination of the optionee. For options
granted before fiscal 1999, each employee
is fully vested in all options granted
under the Plan after the completion of two
years of continuous service to the
Company. If the optionee has been employed
by the Company for a period of less than
two years, all options granted under the
plan vest at a rate of 50% per year.
Options granted after fiscal 1998 vest at
a rate of 20% per year.
During fiscal 1995, the Company adopted a
directors' plan, (the "Directors' Plan").
Under the Directors' Plan, each
nonmanagement director is to be granted
options covering 5,000 shares of common
stock initially upon election to the
Board, and each year in which he/she is
selected to serve as a director. In fiscal
2000, 45,000 options were granted to
directors under the Directors' Plan to
cover required grants for fiscal 2000,
1999 and 1998.
.
<PAGE>
11. Stockholders'
Equity
(Continued)
Stock Options
(Continued)
During fiscal 2000 and 1999, 2,842,000 and
6,001,500 options, respectively, were
granted primarily to employees and
directors of the Company with exercise
prices equal to the stock's fair value on
the issue date. Of the options issued in
fiscal 2000, 2,650,000 were granted
outside of the Company's established plans
to management with half of these options
beginning to vest on the anniversary date
of the grant at a rate of 20% per year and
half of these options vesting the earlier
of 9 1/2 years from grant date, retirement
of optionee who has attained 65 years of
age, or attainment of certain performance
objectives. During fiscal 2000, 1,012,800
options held by employees of the Company
were cancelled or expired and 136,725
options held by employees were exercised.
A summary of option transactions is as
follows:
<TABLE>
<CAPTION>
Shares Price
--------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at September 30, 1998 1,930,823 $ .20 - $7.38
Cancelled/expired (420,000) .20 - 1.36
Exercised (56,450) .20 - .53
Granted 6,001,500 .28 - 2.24
--------------------------------------------------------------------------------------
Outstanding at September 30, 1999 7,455,873 .20 - 7.38
Cancelled/expired (1,012,800) .20 - 1.36
Exercised (136,725) .20 - .59
Granted 2,842,000 .17 - 3.19
--------------------------------------------------------------------------------------
Outstanding at September 30, 2000 9,148,348 $ .17 - $7.38
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
11. Stockholders'
Equity
(Continued)
Stock Options
(Continued)
The following tables summarize information
about stock options outstanding and
exercisable at September 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding
Weighted-
Number Average Weighted-
Range of Outstanding at Remaining Average
Exercise September 30, Contractual Exercise
Prices 2000 Life (years) Price
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .17- $ .20 317,300 4.5 $ .20
.25- .28 1,110,000 5.9 .25
.35- .59 4,082,048 8.3 .35
1.19- 1.36 1,070,000 8.7 1.34
1.71- 2.24 563,000 8.9 2.22
2.38- 3.19 1,986,000 9.8 2.74
--------------------------------------------------------------------------------------
7.38 20,000 1.9 7.38
--------------------------------------------------------------------------------------
$ .17- $ 7.38 9,148,348 8.3 $ 1.10
--------------------------------------------------------------------------------------
Options Exercisable
Weighted-
Number Average Weighted-
Range of Outstanding at Remaining Average
Exercise September 30, Contractual Exercise
Prices 2000 Life (years) Price
--------------------------------------------------------------------------------------
$ .17- $ .20 267,300 4.0 $ .20
.25- .28 930,000 5.6 .25
.345- .59 832,698 8.1 .35
1.19- 1.36 100,000 8.5 1.33
1.71- 2.24 57,400 8.9 2.24
2.38- 3.19 15,000 9.5 3.19
--------------------------------------------------------------------------------------
7.38 20,000 1.9 7.38
--------------------------------------------------------------------------------------
$ .17- $ 7.38 2,222,398 6.6 $ 0.47
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
11. Stockholders'
Equity
(Continued)
Stock Options
(Continued)
The Company accounts for its stock-based
compensation plan using the intrinsic
value method. Accordingly, no compensation
cost has been recognized for its stock
option plan. Had compensation cost for the
Company's stock option plan been
determined based on the fair value at the
grant dates for awards under the plan
consistent with the method of Statement of
Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation,
the Company's net loss and loss per share
would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Net loss As reported $ (6,360,783) $ (3,117,680)
Pro forma $ (7,011,127) $ (3,264,120)
Loss per share As reported $ (.26) $ (.24)
Pro forma $ (.29) $ (.25)
</TABLE>
In determining the pro forma amounts
above, the Company estimated the fair
value of each option granted using the
Black-Scholes option pricing model with
the following weighted-average assumptions
used for grants in 2000 and 1999: dividend
yield of 0% for both years and expected
volatility of 80.48% for 2000 and 45.8%
for 1999, risk free rates ranging from
5.57% to 6.75% for 2000 and 4.60% to 6.13%
for 1999, and expected lives of 5-9 years
for 2000 and 1999.
The weighted average fair value of options
granted in fiscal 2000 and 1999 was $2.19
and $.41, respectively.
<PAGE>
11. Stockholders'
Equity
(Continued)
Earnings Per
Share
The following data show the amounts used
in computing earnings per share:
<TABLE>
<CAPTION>
September 30, 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Net loss $ (6,360,783) $ (3,117,680)
Less:
Preferred stock dividends (374,379) (274,677)
Accreted dividends - (873,073)
Value of warrants issued in
connection with Series B preferred
stock sales - (609,266)
Value of warrants in connection with
Series C preferred stock sales (468,939) -
Value of warrant extensions (62,250) -
--------------------------------------------------------------------------------------
Loss available to common stockholders
used in basic and diluted EPS $ (7,266,351) $ (4,874,696)
--------------------------------------------------------------------------------------
Weighted average number of common
--------------------------------------------------------------------------------------
shares outstanding 27,565,388 20,303,819
--------------------------------------------------------------------------------------
</TABLE>
The following table summarizes securities
that were outstanding as of September 30,
2000 and 1999, but not included in the
calculation of diluted net loss per share
because such shares are antidilutive:
<TABLE>
<CAPTION>
September 30, 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Stock options 9,148,348 7,455,873
Convertible preferred stock 16,627,984 16,826,744
Stock warrants 4,024,734 9,531,000
</TABLE>
<PAGE>
11. Stockholders'
Equity
(Continued)
Settlement of
Litigation
A.S. Goldmen & Company, Inc.
("Underwriter") and certain holders of the
Underwriter's warrants issued by the
Company had previously commenced a court
action against the Company in the Federal
Court for the Southern District of New
York (the "Court"). In December 1998, the
Court denied the Company's motion to
dismiss this action, but the Court did not
decide and expressly left open the
principal legal argument urged by the
Company in favor of dismissal. In March
1999, this action was settled and
discontinued with prejudice. In connection
with the settlement, the Company issued
400,000 shares of common stock.
12. Income Taxes
No provision for Federal income taxes has
been made for the years ended September
30, 2000 and 1999, due to the Company's
operating losses. At September 30, 2000,
the Company has unused net operating loss
carryforwards of approximately $30,300,000
(including approximately $11,000,000
acquired from ATI) which expire at various
dates through 2020. Most of this amount is
subject to annual limitations due to
various "changes in ownership" that have
occurred over the past few years.
Accordingly, most of the net operating
loss carryforwards will not be available
to use in the future.
As of September 30, 2000 and 1999, the
deferred tax assets related to the net
operating loss carryforwards have been
fully offset by valuation allowances,
since the utilization of such amounts is
uncertain.
<PAGE>
13. Major Customers
and Suppliers
Customers in excess of 10% of total sales
are:
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Customer A $ 628,000 $ -
Customer B $ - $ 350,000
Customer C $ - $ 746,000
</TABLE>
At September 30, 2000, accounts receivable
from major customers totaled approximately
$54,000.
The Company's current suppliers of certain
key material components are the only
vendors that meet the Company's
specifications for such components. The
loss of these suppliers could have a
material adverse effect on the Company.
14. Subsequent Events
Subsequent to year end, the Company
received proceeds amounting to
approximately $1,321,000 in connection
with the sale of common stock.
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The directors and executive officers of the Company and their respective
ages and positions with the Company, as of September 30, 2000, along with
certain biographical information (based solely on information supplied by
them), are as follows:
Name Age Title
Peter P. Phildius 70 Chairman of the Board and Chief Executive
Officer/Director
Douglas W. Scott (1) 54 President and Chief Operating Officer/Director
Jay C. Leatherman Jr. 56 Chief Financial Officer and Secretary
Carl M. Good, III 57 Vice President, Research and Development
Douglas Lewis 51 Vice President and President of USDTL
James Groth (1)(2) 62 Director
Neil R. Gordon (1)(2) 52 Director
Charles R. McCarthy (1)(2) 62 Director
1.Member of Audit Committee.
2.Member of Compensation Committee.
Peter P. Phildius
Mr. Phildius has been Chairman of the Company's Board of Directors since
October 1990 and Chief Executive Officer since July 1996. He has been a general
partner in Phildius, Kenyon & Scott ("PK&S") since the firm's founding in 1985.
Prior to 1985, Mr. Phildius was an independent consultant and Chairman and co-
founder of Nutritional Management, Inc., a company that operates weight loss
clinics (1983 - 1985), President and Chief Operating Officer of Delmed, Inc., a
medical products company (1982 - 1983), President and Chief Operating Officer of
National Medical Care, Inc., a dialysis and medical products company (1979 -
1981), and held a variety of senior management positions with Baxter
Laboratories Inc. ("Baxter"), a hospital supply company and the predecessor of
Baxter Healthcare Corporation. During the last eight years of his 18 year career
at Baxter (1961 - 1979), Mr. Phildius was Group Vice President and President of
the Parenteral Division, President of the Artificial Organs Division and
President of the Fenwal Division.
Douglas W. Scott
Mr. Scott has been the Chief Operating Officer since July 1996, was the
Chief Executive Officer from August 1989 until July 1996 and has been a director
of the Company since August 1989. Mr. Scott has been a general partner in PK&S
since its founding in 1985. Prior to 1985, Mr. Scott was Executive Vice
President of Nutritional Management, Inc. (1983 - 1985); Senior Vice President,
Operations of Delmed, Inc. (1982 - 1983); Vice President, Quality Assurance of
Frito-Lay, Inc., a consumer products company (1980 - 1982); and held several
senior positions at Baxter from 1970 - 1980. The last two of these senior
positions at Baxter were General Manager of the Vicra Division and General
Manager of Irish Operations. Mr. Scott is also a director of Candela Laser
Corporation, a publicly-traded company in the business of manufacturing and
marketing medical lasers. Mr. Scott received an M.B.A. from Harvard Business
School.
Jay C. Leatherman, Jr.
Mr. Leatherman has served as the Company's Chief Financial Officer since
October 1992 and its Secretary since July 1994. He has over 16 years experience
in financial management in the health care field. Mr. Leatherman served as Vice
President and Chief Financial Officer of 3030 Park, Inc. and 3030 Park
Management Company from 1985 to 1992, responsible for financial, management
information services and business development functions for this continuing care
retirement community and management company. He served as Director of Finance
and Business Services for the Visiting Nurses Association of New Haven, Inc.
from 1977 to 1985. In addition, he served in a variety of accounting and
financial positions with Westinghouse Electric Corporation from 1969 to 1977.
Mr. Leatherman has a Bachelor's Degree in Business Administration from the
University of Hawaii.
Carl M. Good, III
Dr. Good has served as the Company's Vice President of Research and
Development since February 1997 and as a consultant and member of the Company's
Scientific Board since October 1996. He has over 30 years of experience in
product development and operating management experience in the medical
diagnostics industry. Dr. Good has held technology management positions with
Millipore Corporation and most recently, worked in the development of
sophisticated medical diagnostic products at Cambridge Biotech Corporation. He
has received a Ph. D. in Microbial Genetics from Iowa State University and has
completed Postdoctoral Study in Enzymology at the University of Wisconsin
Medical School and the University of Massachusetts.
Douglas Lewis
Mr. Lewis has been the President of USDTL since 1990 and was appointed Vice
President of the Company upon the acquisition of USDTL by the Company. He has
over 25 years experience in the operation and management of laboratories, which
specialize in diagnostic testing for drugs of abuse. Mr. Lewis has held senior
level management and consulting positions with various hospital and private
laboratories in the Chicago, Illinois area. He received a Bachelor of Arts
Degree in Chemistry from Grinnell College and was a Pre-Doctoral Fellow at the
University of Illinois.
James Groth
Mr. Groth has served as a director of the Company since January 1990. Mr.
Groth has been President of Mountainside Corporation, a provider of corporate
sponsored functions, for over the past 15 years.
Neil R. Gordon
Mr. Gordon has served as a director since June 1997. He has been President
of N.R. Gordon & Company, Inc., a company that provides a broad range of
financial consulting services, since 1995. From 1981 to 1995, he was associated
with Ekco Group, Inc. and served as its Treasurer from 1987 to 1995. Mr. Gordon
has also served as Director of Financing and Accounting for Empire of Carolina,
Inc. He received a Bachelor of Science Degree from Pennsylvania State
University.
Charles R. McCarthy, Jr.
Mr. McCarthy has served as a director since February 1999. He has been
counsel in the Washington D.C. law firm, O'Connor & Hannan, since 1993. He is
currently a director of Interactive Technology.Com, Limited. Previously, Mr.
McCarthy was General Counsel to the National Association of Corporate Directors,
served as a trial attorney with the Securities and Exchange Commission, was Blue
Sky Securities Commissioner for the District of Columbia and was a law professor
teaching securities law topics and served as a Board member of and counsel to a
number of public companies over the last 30 years.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act ("SEC") of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and AMEX.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based on its review of the copies of such forms received by it, the Company
believes that, during Fiscal 2000, all filing requirements applicable to its
officers, directors and greater than ten-percent shareholders were complied with
except the following failures to file timely reports required by Section 16(a):
* One report (Form 4) covering 3 transactions was filed late by James Groth.
* One report (Form 4) covering 2 transactions was filed late by Charles
McCarthy.
* One report (Form 4) covering 4 transactions was filed late by Neil Gordon
Item 10. Executive Compensation
Summary Compensation Table. The following table sets forth compensation
earned by or paid to the Chief Executive Officer, Chief Operating Officer and
other executive officers for Fiscal 2000 and, to the extent required by
applicable Commission rules, the preceding two fiscal years.
<TABLE>
<CAPTION>
Annual Compensation Long-Term
Name/Position Year Salary(1) Bonus Compensation Options
<S> <C> <C> <C> <C>
Peter P. Phildius 2000 $170,833 0 0
(Chairman of the Board/ 1999 $150,000 0 1,450,000 (2)
Chief Executive Officer) 1998 $150,000 0 100,000 (3)
Douglas W. Scott 2000 $162,500 0 0
(President/ 1999 $150,000 0 850,000 (2)
Chief Operating Officer) 1998 $150,000 0 100,000 (3)
Jay C. Leatherman, Jr. 2000 $108,239 0 0
(Chief Financial Officer) 1999 (4) 0 437,500 (2)
1998 (4) 0 50,000 (3)
Carl Good 2000 $117,981 0 0
(Vice President of 1999 (4) 0 390,000 (2)
Research & Development) 1998 (4) 0 50,000 (3)
Douglas Lewis 2000 $126,000 0 0
(Vice President/President 1999 (4) 0 250,000 (5)
of USDTL) 1998 Not an officer or employee of the
Company
</TABLE>
(1) Does not include amounts reimbursed for business-related expenses incurred
by the executive officers on behalf of the Company.
(2) Reflects additional stock options granted to executive officers by the
Company's Board of Directors in January 1999.
(3) Reflects additional stock options granted to executive officers by the
Company's Board of Directors in February 1998.
(4) Compensation did not equal or exceed $100,000.
(5) Reflects stock options granted to executive officer by the Board of
Directors as part of the acquisition of USDTL in July 1999.
Stock Option Grants in Last Fiscal Year. No stock options were granted to
the executive officers during Fiscal 2000.
Option Exercises in Last Fiscal Year and Year-Ended Option Values. No stock
options or stock appreciation rights were exercised by the executive officers in
Fiscal 2000.
As of September 30, 2000, the executive officers held options as follows,
all of which are in the money:
Options Value of Options
Total Options Exercisable Exercisable Not Exercisable
Peter Phildius 1,800,000 666,000 $1,801,480 $3,010,770
Douglas Scott 1,200,000 606,000 1,642,180 1,577,070
Jay Leatherman 540,000 146,250 398,806 1,045,406
Carl Good 540,000 189,000 533,545 931,905
Douglas Lewis 250,000 25,000 41,750 375,750
Employment Agreements. Messrs. Phildius and Scott are covered by Employment
Agreements (the "Employment Agreements") which commenced on May 19, 1995.
Pursuant to the Employment Agreements, if Messrs. Phildius and/or Scott are
terminated without "Cause" (as such term is defined in the Employment
Agreements) by the Company or if Messrs. Phildius and/or Scott terminate their
employment as a result of a breach by the Company of its obligations under such
Agreements, he will be entitled to receive his annual base salary ($200,000 for
Mr. Phildius and $180,000 for Mr. Scott) for a period of up to 18 months
following such termination. In addition, if there is a "Change of Control" of
the Company (as such term is defined in the Employment Agreements) and, within
two years following such "Change of Control", either of Messrs. Phildius or
Scott is terminated without cause by the Company or terminates his employment as
a result of a breach by the Company, such executive will be entitled to certain
payments and benefits, including the payment, in a lump sum, of an amount equal
to up to two times the sum of (i) the executive's annual base salary and (ii)
the executive's most recent annual bonus (if any). In addition, pursuant to the
Employment Agreements, which have a three-year term (subject to extension),
Messrs. Phildius and Scott are each entitled to annual bonus payments of up to
$150,000 if the Company achieves certain levels of pre-tax income (as such term
is defined in such Agreements).
Director Compensation. The Company presently pays its non- management
directors $500 for each Board and Committee meeting, which they attend plus a
travel fee of $250 if they must travel outside of the area to attend the
meeting. In consideration of the fact that the Company does not pay its
non-management directors an annual retainer, the Company adopted a directors'
plan (the "Directors' Plan"), which was approved by the Stockholders on May 18,
1995. Under the Directors' Plan, each non-management director is to be granted
options covering 5,000 shares of the Company's Common Stock initially upon
election of the Board, and each year in which he/she is selected to serve as a
director. On June 16, 1994, the Board of Directors granted to each member of the
Special Independent Committee options to purchase 10,000 shares of the Company's
Common Stock at an exercise price of $0.59 per share, representing the fair
market value of the Company's Common Stock on the date of such grant. Such
options represent an initial special grant as well as the grant for calendar
year 1995. During Fiscal 1998, all options described above were canceled and
replaced with options that have an exercise price of $.25 per share with no
change in the expiration dates. Also during Fiscal 1998, the Company's Outside
Directors were each granted options to purchase 70,000 shares of the Company's
Common Stock at an exercise price of $.25 per share until February 4, 2008.
These new options vested and became exercisable on the basis of 50% on February
4, 1999 and 50% on February 4, 2000. In March 2000, non-management directors
received grants of 45,000 options to cover required grants for calendar years
1998, 1999 and 2000 with exercise prices ranging from $ .17 to 3.19 per share.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of December 31, 2000 by (i) each person believed by
the Company to be the beneficial owner of more that 5% of the outstanding
Company Common Stock; (ii) each director of the Company; (iii) the Company Chief
Executive Officer and its four most highly compensated executive officers (other
than the Chief Executive Officer) who earn over $100,000 a year; and (iv) all
directors and executive officers of the Company as a group. Beneficial ownership
by the Company's stockholders has been determined in accordance with the rules
promulgated under Section 13(d) of the Securities Exchange Act of 1934, as
amended. All shares of the Company Common Stock are owned both of record and
beneficially, unless otherwise indicated.
Name and Address of Beneficial Owner (1) No. Owned %
Peter P. Phildius (2)(3)(11)(15) 4,437,251 13.7
Douglas W. Scott (2)(4)(11)(16) 3,169,640 10.0
Phildius, Kenyon & Scott("PK&S") (2)(11) 1,681,735 5.4
Jay C. Leatherman, Jr.(2)(5) 195,630 *
Carl Good (2)(6) 397,620 1.3
Douglas Lewis (2)(7)(17) 944,017 3.1
James Groth (2)(8)(18) 179,699 *
Neil R.Gordon (2)(9) 258,333 *
Charles R. McCarthy (2)(10) 158,035 *
GIN99 LLC (12) 9,791,110 24.3
David Brown (13) 5,146,976 14.9
Alan Aker (14) 1,850,910 5.7
All directors and executive officers as a
group (3)(4)(5)(6)(7)(8)(9)(10)(11)(15)(16)(17)(18) 8,058,490 23.8
* Indicates beneficial ownership of less than one (1%) percent.
1. Information with respect to holders of more than five (5%) percent
of the outstanding shares of the Company's Common Stock was derived
from, to the extent available, Schedules 13D and the amendments
thereto on file with the Commission and the Company's records
regarding Preferred Stock issuances.
1. The business address of such persons, for the purpose
hereof, is c/o Avitar, Inc., 65 Dan Road, Canton, MA
02021.
1. Includes 1,597,530 shares of the Company's Common Stock, options and
warrants to purchase 1,089,496 shares of the Company's Common Stock
and preferred stock convertible into 68,490 shares of the Company's
Common Stock. Also includes the securities of the Company
beneficially owned by PK&S as described below in Note 11.
1. Includes 644,911 shares of the Company's Common Stock, options and
warrants to purchase 774,504 shares of the Company's Common Stock
and preferred stock convertible into 68,490 shares of the Company's
Common Stock. Also includes the securities of the Company
beneficially owned by PK&S as described below in Note 11.
1. Includes 5,630 shares of the Company's Common Stock, and
options and warrants to purchase 190,000 shares of the
Company's Common Stock.
1. Includes 169,620 shares of the Company's Common Stock,
and options and warrants to purchase 228,000 shares of
the Company's Common Stock.
1. Includes 919,017 shares of the Company's Common Stock, and options and
warrants to purchase 25,000 shares of the Company's Common Stock.
1. Includes 74,699 shares of the Company's Common Stock and options to
purchase 105,000 shares of the Company's Common Stock.
2. Includes 68,333 shares of the Company's Common Stock, warrants to
purchase 100,000 shares of the Company's Common Stock granted to such
director under a consulting agreement to provide services to the
Company and options to purchase 90,000 shares of the Company's Common
Stock.
1. Includes 75,375 shares of the Common Stock, preferred stock
convertible into 72,660 shares of the Common Stock and options to
purchase 10,000 shares of the Common Stock.
1. Represents ownership of 1,367,895 shares of the Company's Common
Stock, options and warrants to purchase 60,000 shares of the Company's
Common Stock and preferred stock convertible into 253,840 shares of
the Company's Common Stock. PK&S is a partnership of which Mr.
Phildius and Mr. Scott are general partners.
1. The address for such entity is c/o Rogers and Wells LLP, 200 Park
Avenue, New York, NY 10166. Represents 200,000 shares of the Company's
Common Stock, preferred stock convertible into 7,391,110 shares of the
Common Stock and warrants to purchase 2,200,000 shares of the Common
Stock.
1. The business address for such person is 4101 Evans Avenue, Fort
Meyers, FL 33901. Represents 1,255,346 shares of the Company's Common
Stock, preferred stock convertible into 3,766,630 shares of the Common
Stock and warrants to purchase 125,000 shares of the Common Stock.
1. The business address for such person is 1445 Northwest Boca Raton,
Boca Raton, FL 33432. Represents preferred stock convertible into
850,910 shares of the Common Stock and warrants to purchase 1,000,000
shares of the Common Stock.
1. Does not include 67,000 shares of the Common Stock owned by Mr.
Phildius' wife, all of which he disclaims beneficial ownership.
1. Does not include 15,000 shares of the Common Stock owned by Mr.
Scott's children, all of which he disclaims beneficial ownership.
1. Does not include 1,123,243 shares of the Common Stock owned by Mr.
Lewis' wife, all of which he disclaims beneficial ownership.
1. Does not include 10,929 shares of the Company's Common Stock owned by
a trust established for Mr. Groth's children, all of which he
disclaims beneficial ownership
Item 12. Certain Relationships and Related Transactions
PK&S, a 3.4 % beneficial owner of the Company, provided consulting services
to the Company from September 1989 to May 1995. On May 28, 1992, the Company
entered into a written consulting agreement with PK&S, which reflected the
provisions of a previous oral agreement approved by the Company's Board of
Directors in October 1990. Pursuant to its arrangement with the Company, PK&S
provided the services of each of Messrs. Phildius and Scott to the Company for
approximately 20 hours per week. Under the terms of the current employment
agreements with Peter Phildius and Douglas Scott described above, the Company
pays their salaries and related expenses directly to PK&S. The aggregate of
salaries, fringe benefits and reimbursement of expenses paid to PK&S by the
Company on behalf of Messrs. Phildius and Scott for fiscal years 2000 and 1999
totaled $460,053 and $387,310 respectively.
On May 19, 1995, the Company's Consulting Agreement ended and was replaced
by the Employment Agreements with Messrs. Phildius and Scott (See "Employment
Agreements"). As requested by Messrs. Phildius and Scott and approved by the
Company's Board of Directors, the salary and benefits provided under the
Employment Agreements will be paid directly to PK&S.
In October 1996, the Company entered into a consulting agreement with N.R.
Gordon & Company, Inc. Neil Gordon, a member of the Company's Board of
Directors, is the President of N.R. Gordon and Company, Inc. Under this
agreement, N.R. Gordon & Company, Inc. provided financial consulting services
for which it received 50,000 warrants at an exercise price of $0.93 per share
and is paid $100.00 per hour for all services performed. In addition, N.R.
Gordon & Company, Inc. is entitled to receive commissions for certain capital
raising services. During Fiscal 1998, Company canceled the 50,000 warrants
granted to N.R. Gordon & Company in 1996 and replaced them with 100,000 warrants
to purchase the Company's Common Stock for $.25 per share until October 2001. No
services were provided to the Company under this Agreement during Fiscal 1999
and Fiscal 2000.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No.
Document
(E) 2.1 Purchase and Sale Agreement made as of June 30, 1999 by and among
Avitar, Inc., Douglas Lewis, Veronica Lewis and United States Drug
Testing Laboratories, Inc.
(F) 3.1 Certificate of Amendment of the Certificate of Incorporation of
the Company dated June 23, 1999.
(G) 4.1 Certificate of Designations, Rights and Preferences of Series B
Redeemable Convertible Preferred Stock
4.2 Certificate of Designations, Rights and Preferences of Series C
Redeemable Convertible Preferred Stock
(A) 10.1 Employment Agreement between MHB and Peter P. Phildius, dated as
of July 23, 1993.
(B) 10.2 Amended and Restated Employment Agreement between MHB and Peter
P. Phildius, dated as of August 15, 1994.
(A) 10.3 Employment Agreement between MHB and Douglas W. Scott, dated as
of July 23, 1993.
(B) 10.4 Amended and Restated Employment Agreement between MHB and Douglas
W. Scott, dated as of August 15, 1994.
(G) 10.5 Form of Subscription Agreement between the Company and parties
purchasing preferred stock during Fiscal 1998 and Fiscal 1999
10.6 Form of Subscription Agreement between the Company and parties
purchasing preferred stock during Fiscal 2000
21.1 Subsidiaries of the Company.
23.1 Consent from BDO Seidman, LLP
(A) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Registration Statement on Form S-4 (Commission File No.
33-71666),and incorporated herein by reference.
(B) Previously filed with the Securities and Exchange Commission as an Exhibit
to MHB's Amendment No. 1 to the Registration Statement on Form S-4(Commission
File No. 33-71666), as filed on October 12, 1994, and incorporated herein by
reference.
(C) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Quarterly Report for the fiscal quarter ended March 31,1996
(Commission File No. 0-20316), and incorporated herein by reference.
(D) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Current Report dated October 27, 1997 (Commission File No.
0-20316), and incorporated herein by reference.
(E) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Current Report dated July 14, 1999 (Commission File No.
0-20316), and incorporated herein by reference.
(F) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Quarterly Report for the fiscal quarter ended June 30, 1999
(Commission File No. 0-20316), and incorporated herein by reference.
(G) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report for the fiscal year ended September 30, 1999
(Commission File No. 0-20316), and incorporated herein by reference.
(b) Reports on Form 8-K:
None
Signatures
In accordance with Section 13 of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: January 12, 2001
Avitar, Inc.
(Registrant)
By: /s/ Peter P. Phildius
Peter P. Phildius
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/Peter P. Phildius
Peter P. Phildius Chairman of the Board and January 12, 2001
Chief Executive Officer
(Principal Executive Officer);
and Director
/s/Douglas W. Scott
Douglas W. Scott President and Chief January 12, 2001
Operating Officer and
Director
/s/J.C. Leatherman, Jr.
J.C. Leatherman, Jr. Chief Financial January 12, 2001
Officer and Secretary
(Principal Financial
and Accounting Officer)
/s/Neil R .Gordon
Neil R. Gordon Director January 12, 2001
/s/James Groth
James Groth Director January 12, 2001
/s/Charles R. McCarthy Director January 12, 2001
Charles R. McCarthy
<PAGE>
Exhibit Index
Exhibit No.
Document
Page No.
(E) 2.1 Purchase and Sale Agreement made as of June 30, 1999 by and among
Avitar, Inc., Douglas Lewis, Veronica Lewis and United States Drug
Testing Laboratories, Inc.
(F) 3.1 Certificate of Amendment of the Certificate of Incorporation of
the Company dated June 23, 1999.
(G) 4.1 Certificate of Designations, Rights and Preferences of Series B
Redeemable Convertible Preferred Stock
4.2 Certificate of Designations, Rights and Preferences of Series C
Redeemable Convertible Preferred Stock
(A) 10.1 Employment Agreement between MHB and Peter P. Phildius, dated as
of July 23, 1993.
(B) 10.2 Amended and Restated Employment Agreement between MHB and Peter
P. Phildius, dated as of August 15, 1994.
(A) 10.3 Employment Agreement between MHB and Douglas W. Scott, dated as
of July 23, 1993.
(B) 10.4 Amended and Restated Employment Agreement between MHB and Douglas
W. Scott, dated as of August 15, 1994.
(G) 10.5 Form of Subscription Agreement between the Company and parties
purchasing preferred stock during Fiscal 1998 and Fiscal 1999
10.6 Form of Subscription Agreement between the Company and parties
purchasing preferred stock during Fiscal 2000
21.1 Subsidiaries of the Company.
23.1 Consent from BDO Seidman, LLP
(A) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Registration Statement on Form S-4 (Commission File No.
33-71666), and incorporated herein by reference.
(B) Previously filed with the Securities and Exchange Commission as an Exhibit
to MHB's Amendment No. 1 to the Registration Statement on Form S-4
(Commission File No. 33-71666), as filed on October 12, 1994, and
incorporated herein by reference.
(C) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Quarterly Report for the fiscal quarter ended March
31,1996 (Commission File No. 0-20316), and incorporated herein by
reference.
(D) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Current Report dated October 27, 1997 (Commission File No.
0-20316), and incorporated herein by reference.
(E) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Current Report dated July 14, 1999 (Commission File No.
0-20316), and Incorporate herein by reference.
(F) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Quarterly Report for the fiscal quarter ended June 30,
1999 (Commission File No. 0-20316), and incorporated herein by reference.
(G) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report for the fiscal year ended September 30, 1999
(Commission File No. 0-20316), and incorporated herein by reference.
